Google, Yahoo chase social networking sites

Media do merger dance

NEW YORK — Old and new media are locked in battle to acquire even newer media, and deals made now could set the stage for a wave of even bigger transactions down the road.

Google is said to be in talks to buy year-old video-sharing site YouTube for a whopping $1.6 billion. Yahoo! is mulling a $1 billion bid for social networking site Facebook. Microsoft is shopping, as are Viacom, News Corp. et al. Tech and showbiz titans have never knocked heads quite so directly over the same deals as they are doing today. And all around, they’re agonizing over what constitutes a fair price in a fast-changing media landscape.

At the end of the day, tough choices today may decide whether, say, Yahoo! eventually buys Viacom or vice versa; whether Google swallows Disney, or the other way around.

YouTube is bigger and growing faster than Google’s own video service, which makes it a great fit for the search giant. But traditional media companies are salivating over the fast-growing Internet advertising space and searching for new ways to reach viewers.

The Google-YouTube talks, first reported late last week on video Web site TechCrunch, ultimately could fall apart. Someone else may step in with a higher offer for the San Mateo, Calif., company launched only last winter (in a garage, of course) by current CEO Chad Hurley and chief technology officer Stephen Chen. The site, which has about 50 million users, delivers more than 100 million videos a day.

A portion of the content violates copyrights, which has led some in the industry (Universal Music chief Doug Morris is most often cited but is far from alone) to complain and even compare YouTube to music file-sharing company Napster in its early days.

YouTube has said the difference is that it immediately removes the offending video from its site when asked. The Digital Millennium Copyright Act doesn’t require Netcos to screen the material put on their sites.

“But at some point, a company with a lot of leverage will say, ‘I don’t care what the law says. You’re not going to do it anymore,” said one industry insider over the weekend.

The stakes are high. The wide interest in YouTube and the generous pricetag show the heat surrounding cutting-edge Internet companies is still growing despite questions on how to transform their big auds into big money for a parent company, whether through advertising, fees or other revenue.

And it’s never a sure bet that today’s hot company will still be hot five years from now; ask TiVo. Being first doesn’t mean you’ll necessarily stay on top if others can do the same thing you can.

“At what point is it still interesting, and at what point does it become prohibitively expensive?” the exec said.

The key seems to be getting in early. News Corp. bought Facebook’s larger rival MySpace for $580 million about a year and a half ago. Viacom chairman Sumner Redstone, who also wanted it, figures, regretfully, that it’s worth $1.5 billion today. MySpace has all but paid for itself through a multiyear advertising deal with Google worth $900 million.

Redstone says Facebook’s too expensive now, and Viacom’s strategy is to buy cutting-edge startups — before they become the next MySpace, Facebook or YouTube.